Fair Pay and Safe Workplaces Final Rule Takes Effect in October: Are You Ready?

Christian N. Curran

In what may be the most significant change to contractor compliance this year, the Fair Pay and Safe Workplaces final rule takes effect on October 25, 2016. On August 25, 2016, the FAR Council and Department of Labor (“DOL”) issued the final rule and guidance implementing the Fair Pay and Safe Workplaces Executive Order, also known as “The Blacklisting Order” (originally issued on July 31, 2014). The order created new requirements for contractors, adding pre- and post-award reporting demands on covered contracts regarding contractor compliance with 14 separate labor laws. The proposed rule that was published on May 28, 2015, resulted in over 10,000 comments being submitted. The rule contains substantial new compliance obligations for contractors and drastic consequences for noncompliance. As discussed below, contractors need to take immediate steps in order to ensure readiness for these expansive new obligations.

Key Provisions

There are three main provisions to the rule: (1) requirements to disclose and track labor violations; (2) paycheck transparency; and (3) limits on the use of mandatory arbitration clauses. The rule applies to contracts and subcontracts valued at $500,000 or more (excluding contracts for commercially available off-the-shelf items (“COTS”)).

Monitoring and Disclosure of Labor Violations

Under the rule, contracting officers and the newly established Agency Labor Compliance Advisors will need to evaluate a contractor’s record of compliance, both pre-award and during contract performance, with applicable federal labor laws and regulations (and “equivalent state laws”). Contractors and subcontractors on covered contracts also have an obligation to update their disclosures on a semi-annual basis.

This list of regulations is considerable. The rule applies to violations of the following regulations:

The Fair Labor Standards Act (“FLSA”)

Occupational Safety and Health Act

National Labor Relations Act

Americans with Disabilities Act

Family and Medical Leave Act

Civil Rights Act, Title VII

Age Discrimination in Employment Act

Davis-Bacon Act (“DBA”)

Service Contract Act (“SCA”)

Section 503 of the Rehabilitation Act

Vietnam Era Veterans’ Readjustment Assistance Act

Migrant and Seasonal Agricultural Worker Protection Act

Executive Order 11246 (Equal Employment Opportunity)

Executive Order 13658 (Contractor Minimum Wage)

Paycheck Transparency

Starting January 1, 2017, the paycheck transparency regulations require contractors working on contracts covered by the FLSA, DBA, and SCA to provide a paycheck information statement to employees showing the total amount of pay (including any deductions), hours worked, and overtime, for each pay period, among other things. Contractors must also provide documentation to their independent contractors informing them of their status, and notice to exempt workers that they are exempt from overtime pay.

Limits to Arbitration

The arbitration of claims regulations state that contractors may not mandate arbitration for claims arising under Title VII of the Civil Rights Act, or claims for sexual assault or harassment. Arbitration of these types of claims will still be permitted as long as the employee or independent contractor provides voluntary consent after the dispute arises. These regulations only apply to contracts of $1 million or more.

Key Provisions of the Final Rule

The key changes and provisions of the final rule are as follows:

Application to Legal Entities: The final rule clarifies that it applies only to the legal entity responsible for performing the contract.

Subcontractor Compliance: Subcontractors will be required to report any initial disclosures directly to the Department of Labor, not to the prime contractor.

Pre-Assessment Process: The final rule and guidance provides an opportunity for contractors to obtain a voluntary pre-assessment from DOL.

Implementation Timeline: Starting October 25, 2016, the rule will apply to new prime contracts of $50 million or more. There will be a six-month grace period before application to contracts of $500,000 or more (excluding COTS contracts). Subcontractors will have an extra year (until October 25, 2017). Further, the three-year look-back for labor decisions under the rule will be phased in and will not apply to decisions made prior to October 25, 2015.

Definitions: The final rule does not address the overly broad and vague definition of “administrative merits determinations.” As defined, this means that contractors must not only certify as to final judgments or decisions, but also preliminary agency findings that have yet to be reviewed or adjudicated. The rule also classifies violations using broad definitions of what qualifies as a “serious,” “willful,” “pervasive,” or “repeated” violation, which makes it difficult for contractors to understand how the terms will be applied in practice due to their vague and subjective nature.

Assessment of Disclosures and Compliance with the Rule

Disclosures under the rule will be evaluated in a holistic manner taking into account the contractor’s overall compliance history. Contractors who are found to be noncompliant face a variety of consequences from negotiating a compliance agreement to termination, suspension and debarment, and even potential liability under the False Claims Act (in the event of a false certification under the rule).

The best way to ensure compliance from the start is to ensure that your company prepares in a methodical and organized way in order to avoid any surprises down the line. This includes implementing a robust and transparent system for tracking and reporting violations. Utilizing the DOL pre-assessment process may also provide contractors with a leg up if there are concerns about how certain disclosures will impact the contractor’s assessment. Contractors can have their compliance history reviewed before the procurement and participation will be considered a mitigating factor in future assessments. Contractors can also take proactive steps by modifying teaming agreements and subcontracts to address the flow-down of the reporting requirements as required by the rule.

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